Technical Assistance Consultant s Report. TA 7566-REG: Strengthening and Use of Country Safeguard Systems

Transcription

1 Technical Assistance Consultant s Report Project Number: Date: April 2015 TA 7566-REG: Strengthening and Use of Country Safeguard Systems Subproject: Developing Resettlement Safeguards Capacity in the Transport Sector (Timor-Leste) REGULATIONS TO IMPLEMENT THE EXPROPRIATION LAW: REPORT BY INTERNATIONAL LEGAL SPECIALIST Prepared by ADB Consultant Team This consultant s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents.

2 Consultant s Report Project Number: S83172 April 2015 Consultant s Report TA-7566-REG: Strengthening and Use of Country Safeguard Systems ( ) Developing Resettlement Safeguards Capacity in the Transport Sector in Timor-Leste Regulations to Implement the Expropriation Law Report by International Legal Specialist

3 ABBREVIATIONS AP AusAid DNTPSC Land Law LAR MoJ MPW PMU RP SPS USAID affected person Australian Agency for International Development National Directorate of Land, Property and Cadastral Survey (Portuguese abbreviation) draft Special Regime for Determining Ownership of Immovable Property (Regime Especial para a Definição da Titularidade de Bens Imóveis) (2012) land acquisition and resettlement Ministry of Justice Ministry for Public Works Project Management Unit resettlement plan Safeguard Policy Statement (ADB) United States Agency for International Development The International Legal Specialist acknowledges the assistance of Bernardo Almeida, Land Legal Advisor, Ministry of Justice of Timor-Leste and UNDP Justice System Program. 2

4 1. INTRODUCTION AND KNOWLEDGE SUMMARY 1. This is the final report of the International Legal Specialist, who was tasked with the scoping and drafting of regulations to implement the Expropriation Law, particularly on valuation of land and assets for compensation under development projects. 2. The work is part of ADB s support to Timor-Leste for developing resettlement safeguards capacity in the transport sector under a subproject funded by TA The subproject's outcome is an improved legal framework and implementation capacity on land acquisition and resettlement safeguards. 3. The scoping for the regulations is set out in Part 2. The regulations, with explanatory notes, are contained in Schedule A. 4. The regulations are based on the draft Expropriation Law approved by Council of Ministers in 2013, but which has not yet been debated in Parliament. There is a possibility of amendments before adoption by Parliament which we are unable to anticipate and which may affect the need for and nature of regulations. If this happens, the regulations produced in this assignment will have to be revisited. 5. The regulations are drafted in English. Since they will be adopted in Portuguese and Tetum, translation issues will arise. Often legal terms in English do not have exact equivalents in other languages, not only because of linguistic differences but also because of differing legal regimes. Explanatory notes attached to the regulations may assist in addressing some translation issues. 6. As for the progress of the Expropriation Law in Parliament, there was no activity during 2014 nor a schedule for its review and adoption. A new government was formed in March 2015, and as a result the proposals that were before Parliament expired. It is not known if the new government will re-submit them. 7. The scoping report recommends the preparation of a manual of administration to facilitate operationalisation of land acquisition projects at the level of officials who are not sufficiently familiar with the process. It would supplement guidelines with step-by-step procedures, model forms, notices and agreements. Such a manual has been prepared under the subproject. It has been possible to incorporate some of the concepts of the regulations into the manual, including provisions as to valuation of land and assets for compensation. Thus even without the passing of the Expropriation Law it may be possible to institutionalise some of the ideas presented by the regulations. 3

5 2. SCOPING FOR REGULATIONS UNDER THE EXPROPRIATION LAW INTRODUCTION 8. The criteria the consultant has adopted for the scoping of regulations are as follows: a. the appropriateness of strengthening social safeguards by means of regulation; b. the need to supplement the valuation and compensation provisions, particularly in light of the lack of market information and expertise in valuation; c. the need for and appropriateness of other implementation measures to be the subject of regulation; d. the possibility of adopting such regulations despite the approval of the Expropriation Law. FINDINGS AND RECOMMENDATIONS OF PREVIOUS REPORTS Legal Analysis February This report prepared a legal analysis, assessed institutional capacity, and recommended the legal aspects of an action plan for strengthening country safeguard systems for LAR. The report identified and analysed Timor-Leste s uncertain land tenure situation, a situation which is not likely to be improved in the medium term and within which LAR and the Expropriation Law will have to operate. The draft Expropriation Law was reviewed to determine the extent of its compliance with ADB s Safeguard Policy Statement (SPS). 10. At the time of this review, the draft Expropriation Law was in a form not yet approved by Council of Ministers and the consultant was in a position to make recommendations to strengthen it from the point of view of social safeguards. As a result the draft Law was amended prior to its approval by Council of Ministers to require the preparation of project planning documents, including a social impact assessment and resettlement plan. 11. The legal analysis stated that there are classes of APs who qualify for protection under social safeguards but which are excluded from the draft Expropriation Law. They include occupiers of expropriated land who do not have an interest in that land and are not poor 2. Only those who qualify as residents in a family home under the Land Law are recognized as APs. Although the Expropriation Law falls short of SPS standards in this regard, those who do not have alternative accommodation or the means to acquire it are recognized as APs. The protection also applies to those who occupy the property to earn their livelihood and cannot afford to move elsewhere. Furthermore, anyone who claims to be an AP as an occupant of a family home must receive the notices that APs are entitled to under the Expropriation Law. 1 Final Report of the International Legal Specialist, Project Number S It was also stated that occupiers of State land without a legal interest are not included. Mr Bernardo Almeida, legal consultant to MoJ, and this consultant disagree with this statement. 4

6 The determination of status is made under the Land Law. However, if the Expropriation Law were to be adopted without the Land Law being passed, there would be no protection for any affected person who does not have a recognizable claim to the land. 12. The report recommended that the draft Law be amended to include as persons entitled to LAR compensation those who qualify under the SPS. This recommendation was not implemented. As an alternative it was suggested the classes of qualifying APs could be supplemented by regulation. The consultant is of the opinion that the classes of APs may only be expanded by amendment of the Expropriation Law The legal analysis points to the risk of outcomes not consistent with SPS if replacement land is inadequate to produce restoration or improvement of livelihoods, or if compensation is inadequate to enable acquisition of suitable replacement land. Such results would also be contrary to the principle stated in Article 5(4) of the Expropriation Law: An expropriation shall leave the interested parties as defined in article 8 below in circumstances such that their standard of living is equal to or higher than the one that they enjoyed before the expropriation took place. This can be addressed by proper administration, which the report says can be covered by regulations or guidelines. 14. With respect to valuation, the legal analysis warns against the reintroduction 45 by means of regulations of the concept of tables of values. It is recommended that regulations or guidelines strengthen the market value concept by providing that valuation must be made on the basis of the highest and best use of the asset. This is not necessary since the definition of market value in international practice implies highest and best use valuation The report pointed out the desirability of APs having access to independent valuation advice so they can assess offers and make informed decisions. This could possibly be addressed by regulation. 16. SPS Policy Principle 1 requires that a gender analysis be included in the survey or census of APs. The report notes that the Expropriation Law is silent as to gender issues, and recommends an amendment to the Law to fill this gap. This gap remains in the Law as approved by Council of Ministers. Gender issues can be covered in guidelines for RPs. However, a legal mandate to address them can be established by regulation. 17. The report points out that draft Expropriation Law has no provision for monitoring and evaluation of the project. It recommends an amendment requiring the beneficiary of expropriation to monitor and assess, with reports to MoJ that are available for inspection by APs. This recommendation was not adopted. It can be provided for in guidelines, but the 3 Mr Almeida concurs. 4 The earlier version of the Expropriation Law, passed by Parliament but vetoed by the President, authorized tables of values. 5 The earlier version of the Expropriation Law, passed by Parliament but vetoed by the President, authorized tables of values. 6 A statement in a regulation mandating highest and best use could be problematic in the application of Article 57-1 of the Law. Compensation for the land at highest and best use separately from the buildings, plus compensation for buildings at undepreciated replacement cost, could produce windfalls for owners of valuable land. 5

7 essential obligation to monitor and evaluate needs to be mandated, and this should be done by regulation. Guidelines can explain the details of implementation of the function. 18. With respect to institutional capacity, the report identifies serious challenges: a. a lack of institutional experience and capacity with LAR and the discharge of safeguard functions; b. limited interaction between the PMU for road sector projects and DNTPSC; c. current institutional structures of the Government not conducive to implementation of the Law on Expropriation and safeguards no dedicated staff for the purpose no unit or workgroup. Measures for enhancement of institutional capacity were proposed. Such measures have not been adopted by the Government to date. 19. To support implementation of the Expropriation Law, guidelines are recommended, providing administrators with guidance as to how to exercise functions. It is suggested such guidelines should be approved by MoJ and published. 20. For the purposes of the scoping of regulations, we accept the following findings of the legal analysis report: a. Regulations may be needed to address valuation but should not prescribe tables of values. b. APs should have access to independent valuation advice, particularly where the beneficiary of expropriation is relying on it. c. A regulation should require gender issues to be addressed in RPs and monitoring and evaluation of LAR projects. d. Administrative guidelines should be given formal approval, with public access to them. Report of the International Land and Property Valuation Specialist - September ( the McDermott Report ) 21. The task of this consultancy was to develop a system of assessment of values for land, crops, structures and assets for the purposes of government acquisition, including valuation tables. 22. The consultant found that in Timor-Leste the real estate market is confused, opaque, often unenforceable, and transferable only with the greatest difficulty, and limited or no market evidence is available. In these circumstances it is difficult to ascertain equitable monetary consideration for expropriation. 23. Previously a rental value map with tables of values for Dili as of March 2005 had been produced after a 14-month consultancy involving DNTPSC staff, AusAID, and USAID s Land 7 Mike McDermott, TA-7698 TIM: Supporting Road Network Development,

8 Law Program, involving the inspection of hundreds of rental properties. The rental information quickly lost any relationship to the market and had to corrected and recorrected. 24. The valuation specialist s opinion was that tables or schedules of values are inappropriate as methodologies for purposes of the Expropriation Law. Their application would not produce equitable compensation and would thus lead to genuine injustice. 25. Regardless of the lack of market information, valuations must be made. The valuer therefore must rely on a set of rules of thumb to produce them. For this purpose the valuation specialist recommended a set of rules of thumb, which he called ansatz 8. They are not to be prescriptive, but are educated guesses that can be verified or falsified later by their results. They are as follows: a. Value Map Proportions: Apply different rates for different locations and use a similar relativity among them. He referred to the rental value map for Dili approvingly in this regard, as a means of showing relative values among zones. b. Changes in Value According to Land Size and Location: Determine the norm for land size for a particular use type. Increase the valuation per square metre for smaller sites and decrease it for larger ones. c. Proportions of Land and Building Values to Total Value: Where the only market information is what the right building for a site would cost, adopt a ratio of the value of the land to the total value of land+buildings. For Dili, this could be 25%. d. A Floor Price for Land of Various Size Ranges. The valuation specialist suggested that for road acquisition the minimum should be $5/m² for a land parcel less than 500 m². e. Housing Affordability Criteria: Adopt internationally accepted ratios of house value to household income. An internationally consistent ratio exists. The sustainable value of a house (including its land) is around 3.5 times annual household income. So if you are in a certain area, determine what typical residents would be able to afford based on estimated average household income. Then apply the land proportion factor (c above) to determine land value The valuation specialist pointed out the need for the factors to be used in these rules of thumb to be revisited regularly, under rigorous collection, interrogation and systematisation of market values by the Ministry of Justice. They should only be effective for six months in Dili and a year elsewhere. 27. For the purposes of scoping of regulations concerning valuation, we agree that tables of value are not appropriate, and that there is a need for rules of thumb such as those proposed by the valuation specialist. The rules of thumb could be authorized by regulation. 8 See section of the report for background and analysis, as well as examples of their application. 9 Clarification obtained in correspondence with Mike McDermott 1 October

9 The regulation would have to provide that their application produces rebuttable assumptions and that their accuracy must be revisited regularly. Review of the Expropriation Law 28. This part discusses the proposed Expropriation Law in light of the need for implementing regulations. As noted in the introduction, the criteria the consultant has adopted for the scoping of regulations are as follows: a. the appropriateness of strengthening social safeguards by means of regulation; b. the need to supplement the valuation and compensation provisions, particularly in light of the lack of market information and expertise in valuation; c. the need for and appropriateness of other implementation measures to be the subject of regulation; d. the possibility of adopting such regulations despite the approval of the Expropriation Law. 29. With respect to the classes of persons who qualify as APs under the Expropriation Law, besides persons with legal interests in land, APs include: anyone who occupies the asset on the date of the publication provided in Article 14(3) and fulfils the requirements to be considered a resident in a family home as set out in the Special Regime for the Determination of Ownership of Immovable Property (also known as the Land Law) The Land Law s requirements refer to the person having no other place to live or no money to find another place. This description is vague. A regulation could make it more specific, and ensure that social safeguards are met. However, such a regulation is properly made under the Land Law. 30. The Legal Analysis evaluated the Expropriation Law in light of the ADB SPS, identifying shortcomings with respect to gender analysis and monitoring and evaluation. It recommended amendments to the Law in this regard. The report was of the view that other risks of non-compliance with SPS can be appropriately dealt with by guidelines that are formally approved by MoJ. 31. A missing ingredient in the description of the RP in the Law is a grievance mechanism. This is a step in the RP process, not to be confused with formal adjudication of a dispute the arbitration that the Law provides for. The result of a grievance mechanism has no legal force, as the beneficiary of the expropriation has the final say. Grievance mechanisms have to be approached with a measure of flexibility, because how they are designed depends on several factors, including the scale and nature of the project, the kinds of effects to be addressed, and the profiles of APs. It is therefore preferable not to be prescriptive about grievance mechanisms, and address them in guidelines. 32. Except for the matters discussed above, the Expropriation Law is expansive and complete in its description of the LAR process: 8 a. planning

10 9 i. identification of assets; ii. social impact assessment and RP; b. public consultation c. inspection i. public notice and APs access to documents; ii. public hearings; iii. publicly available report; i. notice to APs, AP participation; ii. report including appraisal given to AP; d. private law acquisition i. open negotiating sessions; ii. contents of and formalisation of the agreement. The sequences and timelines for these matters are set out. Social safeguards have informed the process as described. With one exception (par 34 below), there is no obvious reason why further elaboration is needed in a regulation. Because of the variety and differing scales of the situations involved in LAR projects, codifying more detailed procedures and other matters in a regulation is not appropriate as it would detract from the flexibility needed. Furthermore, LAR is in its infancy in Timor-Leste, with only donor-funded road projects being carried out in accordance with international social safeguards. These projects have so far involved minimal land acquisition and displacement. Lessons need to be learned, which will inform changes in procedures and approaches, including possibly different institutional arrangements. In the circumstances a regulatory approach to LAR procedures under the Expropriation Law is inappropriate, or at least premature. 33. The same comments apply to the remaining processes: declaration of public interest, administrative takeover, and amicable expropriation. 34. There is one aspect of the RP procedure that is amenable to treatment in a regulation, and should be. The RP contains measures for compensation for losses incurred by APs. These measures necessarily include an opinion of the value of land and buildings (in the case of buildings, the cost of reproduction). This is not necessarily a valuation of each asset that will be acquired, but the valuation criteria that will be used; for example, land of this kind at so much per square metre. The application of these criteria to an individual AP s property comes later at the inspection stage. The beneficiary of the expropriation is responsible for preparation of the RP, including the valuation criteria. Following inspection, an appraisal report is prepared for each individual AP s assets, by the beneficiary together with DNTPSC (Article 24). 35. The process for preparation and approval of the valuation criteria of the RP and the appraisal report for each AP s property needs to be more clearly set out, particularly in the present situation where professional appraisal does not occur. The approval of the RP and of

11 the appraisal report have legal consequences, since they form the basis of the amount of compensation formally offered to the AP. The consultant proposes that a regulation clarify the preparation and approval of valuation criteria and appraisal reports, including the respective roles of the beneficiary of the expropriation and DNTPSC, and address the need for independent advice for APs. 36. Arbitration is a key feature of the Expropriation Law: an attempt to provide a means of adjudicating disputes where APs do not agree with the amount of compensation, which does not require court action. There are aspects of the arbitration procedure that require an implementing regulation. 37. The procedures governing arbitration are summarized as follows (Articles 43-46, 48, 49, 74): a. The beneficiary of the expropriation notifies APs about its intent to undertake amicable expropriation. b. APs have 20 days within which to accept the compensation offered or to present a counter-proposal. c. If an AP does not accept, the beneficiary requests MoJ to initiate arbitration proceedings. d. MoJ forwards all documents to the district court and requests it to appoint an arbitrator. e. The arbitrator is chosen by the court from an official list of experts established by the Government, which will include persons with appraisal skills. Pending approval of the list the court must review CVs of potential arbitrators for expertise in subjects such as engineering, architecture, economics or law. It can be a person 10 with proven expertise in real estate appraisal. f. The arbitrator must within 30 days of appointment make a decision establishing the amount of compensation. (The court can give the arbitrator an extension of up to 30 days if there are too many arbitrations.) The arbitrator is also required to answer any questions raised by APs, the beneficiary of the expropriation, or DNTPSC. 38. Arbitration is a formal quasi-judicial procedure with binding legal consequences affecting the rights of the both APs and the beneficiary of the expropriation. The Expropriation Law is silent on several important aspects of this procedure, which may be supplied by a regulation. They include: a. the form and content of the notice the beneficiary of the expropriation gives to APs; 10 Article 74(3) says the appointment can be of a person or organization with appraisal expertise. This is inconsistent with Article 45 and must be a drafting error. 10

12 b. the form and content of the AP s counter-proposal and how it is delivered to the beneficiary; c. the means by which the court finds and appoints an arbitrator; d. qualified and disqualified candidates for arbitrator (e.g. those in conflict of interest); e. how the case is heard by the arbitrator: notice of hearing, how it is conducted, witnesses and other participants, right of representation, etc.; f. the venue for the hearing; g. the remuneration of the arbitrator and who is responsible for costs. 39. The over-riding principles governing fair compensation are set out in Articles 56 and 57(1): a. APs must not be left in worse circumstances as a result of the expropriation. b. Compensation is calculated on the basis of the market value of the real estate, with market value determined in accordance with the definition and practices of best international practices. c. Buildings and plantations are compensated at replacement cost (as opposed to replacement value). This implies that no depreciation is applied. 40. Detailed provisions are set out respecting compensation for tenants (Article 59) and business and agricultural interruption (Article 60). 41. There is specific mention of possible regulations supplementing the provisions concerning compensation (Article 62). An issue is the extent to which a regulation should supplement these provisions and how prescriptive it can be. 42. The definition of market value and the methods for determining it are well established in international practice. In countries where market information is accessible and there are accredited professional valuers, there is no need for laws on expropriation, or their implementing regulations, to prescribe valuation methodologies. If in certain kinds of situations market value strictly applied would lead to an unjust result, the law may provide for a departure from market value methodology. (For example, a person may have built something that no willing buyer would pay for, such as an elaborate pigeon coop.) Otherwise the principles need no elaboration in a regulation. 43. The situation is different in Timor-Leste. Here (1) there is a lack of market information, (2) in rural areas there may be no market of any kind in land, and (3) there is no valuation profession with the requisite expertise. In these circumstances the approaches to valuation will be different from standard international best practice 11. Rules of thumb may have to be 11 Note that valuation is required even where replacement land or buildings are provided rather than cash compensation, in order to demonstrate equivalence in value between the lost and replacement assets. The Expropriation Law is clear on this point: Article 24(1)(b). See also Article 63(1). 11

13 applied that produce a uniform result that is understandable and can be accepted by APs as fair. The McDermott Report proposed five such rules of thumb, discussed above (par 25). 44. The Guidelines produced in this subproject 12 state: Where an active land market is not present, valuation methodologies need to be developed in order to determine replacement cost. In this respect the subproject prepared Technical Notes 13 setting out two approaches to land valuation: a. Allocation Method: To estimate land value, from areas where there are a number of sales of developed properties derive ratios of land value to land+building value, and apply the resulting land value in the APs area. b. Land Residual Value Method: To estimate land value, for sales of developed properties, cost out the value of the building and deduct it from the total sale price. These methods take market information from areas of active markets to areas where there is no market. 45. The Technical Notes also set out a methodology for valuation of livelihoods and income sources for enterprises of the poor: the Inflation Adjusted Minimum Wage Method. This is analogous to the rules of thumb for land valuation as it is a method of producing an understandable uniform amount where actual determination of loss is constrained by the lack of records, seasonality of the activity, and other factors. 46. The Technical Notes also describe methodologies for valuing (1) livelihoods and income sources in the formal sector and (2) trees. They do not present the same kind of difficulty as the valuations addressed by the above-described rules of thumb. They rely on readily available information and are therefore of a different character. 47. Under the Expropriation Act market value is the mandated criterion for compensation for loss of assets. Where there is little or no market information from which to derive market value to meet this mandate, rules of thumb methodologies produce results that can only approximate the market. There should be legal sanction for such approaches and more importantly safeguards for their application. They should therefore be the subject of a regulation. (Methodologies that rely directly on market data and follow international standards can be set out in guidelines or a valuation manual.) Guidelines and Manual of Administration 48. The lack of capacity for LAR within Government agencies has been emphasized in all reports and in our meetings with PMU for the road sector projects and other informants. The road projects are heavily supported by the PMU with international expertise. Capacity building is only taking place with MPW officials. Other government actors are and will be carrying out 12 Guidelines on Land Acquisition and Resettlement Safeguards for Transport Projects, Appendix 2 to the Guidelines. 12

14 LAR with or without support. The Guidelines that have been produced by the subproject are crucial documents in their own right and as a focus for capacity building. However, officials are not capable of translating them into action. 49. For this purpose a more detailed task and document centred tool is required a manual of administration. It would facilitate operationalisation of an LAR project at the level of officials who are not sufficiently familiar with the process. It would be supplement guidelines with step-by-step procedures, model forms, questionnaires, notices and agreements, methodology for record keeping, etc. 50. The advantages of a manual are (1) to tell officials exactly what to do in an LAR project, (2) to implement social safeguards, and (3) to be a focus for training. 51. Such a manual would not be contained in a regulation. It would not be legally mandated, but the requirement of officials to use it would be an internal administrative instruction approved by a Ministerial Order. 13 Conclusion - Indicated Regulations 52. Contents a. Gender analysis as part of social impact assessment. b. Monitoring and evaluation. c. Methodologies for rules of thumb valuations, and safeguards. d. Procedures for preparing and deciding RP valuation criteria and appraisal reports. e. Requirements and procedures for arbitration. 53. A single regulation can cover all of the contents. 54. The regulation would be approved by Decree of the Minister of Justice. 55. DNTPSC would have prime responsibility for implementation of the regulation. It would be binding on beneficiaries of expropriation. Adoption of regulations in absence of the Expropriation Law 56. As noted in the introduction, the Expropriation Law is no longer before Parliament and the intentions of the government are unknown. This raises the question as to whether it is possible to implement the recommended regulations independently of the Expropriation Law. The short answer is that a regulation cannot be made unless there is a law that authorizes it, and there is no law at present that supports the kind of provisions contained in our recommended regulations. 57. However, there is some scope for institutionalising much of the contents of the recommended regulations, and this lies in the place that DNTPSC occupies in land administration. DNTPSC is the body with authority for management of state land under Decree Law 41/2012 and Ministerial Decree 035/2009, and its action is required in order to complete acquisition of land by the state. This presents an opportunity for DNTPSC to prescribe the

15 conditions under which it will effect the acquisition of land. Its minister could approve guidelines and a manual of administration, incorporating and elaborating the contents of the recommended regulations, which DNTPSC s departments and officials must follow if it is tasked with a land acquisition project. If another government body is carrying out the project, then it will have to follow the same procedures and guidelines in order to interact successfully with DNTPSC. The guidelines/manual can be approved by the minister responsible for DNTPSC, but in order to be effective should also be approved by all ministers involved in land acquisition. 58. The valuation and procedural provisions of the regulations (Chapters II and III) can be implemented in this way. The arbitration provisions may not, as they depend on the court being given jurisdiction under a law. 59. There is an advantage to implementing the valuation and procedural provisions in this way, in that they can be tested in implementation before becoming under a regulatory mandate. 14

16 SCHEDULE A EXPROPRIATION REGULATIONS Ministerial Decree Expropriation Regulation NOTE This regulation does not represent a complete set of procedures governing the implementation of the Expropriation Law ( the Law ). The criteria on which the need for regulations are based are: the appropriateness of strengthening social safeguards by means of regulation; the need to supplement the valuation and compensation provisions of the Law, particularly in light of the lack of market information and expertise in valuation; the need for and appropriateness of other implementation measures to be the subject of regulation. Thus a complete picture of implementation and administration of the Law consists of a combination of the Law and the regulation. It was found, for example, that the provisions of the Law concerning public consultation are sufficiently detailed and complete, with no need for elaboration, while the provisions concerning arbitration required substantial treatment in the regulation. Preamble The National Parliament has passed the Expropriation Law, No. of, providing a legislative scheme for the acquisition of land for reasons of public interest. Whereas it is necessary to provide for methods of determining compensation for assets where it is not possible to ascertain market values due to the absence of a market in land or to a lack of information about sales of property, and to provide safeguards to ensure that the application of such methods results in compensation meeting the principles of the Expropriation Law. Whereas it is necessary to ensure that the planning of a project include identification of the particular needs and priorities of women and of project impacts on women. Where it is necessary to provide for the monitoring and evaluation of resettlement plans. 15

17 Whereas it is necessary to prescribe procedures for consultation with affected persons in the preparation of resettlement plans. Whereas it is necessary to ensure that affected persons have access to independent valuation advice. Whereas it is necessary to provide legal certainty as to the approval of resettlement plans and reports on assets. Whereas it is necessary to set out procedures governing the appointment of arbitrators, the conduct of arbitration hearings, and the decisions of arbitrators. Therefore the Minister of Justice approves under the Expropriation Law, Law of the National Parliament No. of, the following CHAPTER I GENERAL PROVISIONS Article 1 Scope This Regulation applies to all projects governed by the Law of Expropriation. Article 2 Definitions 1. For the purposes of this Regulation, the following definitions shall apply: Director means the director of DNTPSC, Law means the Law of Expropriation, 2. Other terms used in this Regulation shall have the meaning given to them by the Law. NOTE There are two other defined terms (linear project, replacement cost survey). Since they are each used in a single article, they are defined in that article. CHAPTER II VALUATION 16

18 NOTE Article 57 of the Law states the fundamental principle applicable to compensation for expropriation of assets: 1. The expropriation for the public interest of any assets or rights entitles the interested parties to the prior payment of a fair compensation. 2. The payment of compensation is intended to ensure that the interested parties are not left in worse circumstances than the ones they would find themselves in if the expropriation had not taken place. 3. The compensation shall be calculated on the basis of the market value of the real estate property at the time of the declaration of public interest. 4. The market value is assessed in accordance with the definition of market value which exists at the time based on best international practices such as those established in the Handbook of Valuation Standards of the International Valuation Standards Council (IVSC). The definition of market value and the methods for determining it are well established in international practice. In countries where market information is accessible and there are accredited professional valuers, there is no need for laws on expropriation, or their implementing regulations, to prescribe valuation methodologies. The situation is different in Timor-Leste. Here (1) there is a lack of market information, (2) in rural areas there may be no market of any kind in land, and (3) there is no established valuation profession with the requisite expertise. In these circumstances the approaches to valuation will be different from standard international best practice. This Chapter gives legal sanction to rules of thumb that produce a uniform result that is understandable and can be accepted by affected persons as fair. To ensure that application of these methods does not produce unfair compensation, several safeguards are provided for: There must be an attempt to find information about market values, which supersedes the method. Lack of market information must be established before the method can be applied. There are time limits on their effectiveness, and extension or new factors must be based on monitoring and study. Unique situations must be recognized. Where there is something different about an affected person s property that affects its value, adjustments must be made. The valuations produced by the methods are not binding on a court or an arbitrator. This regulation gives the Director of DNTPSC a significant role in valuation methodology and practice, which are the crucial factors in determining compensation and which have legal consequences for affected persons. It is important that a strong institutional focus for valuation be established, rather than leaving the field to each state body that carries out land acquisition. A unit of DNTPSC is the appropriate focus for this activity, which involves systematic tracking of land 17 and rental markets and a centralized database.

19 Article 3 Scope of this Chapter 1. This Chapter applies to the assessment of a. the value of land for the purposes of fair compensation under Article 56 of the Law in areas affected by expropriation where there is no or insufficient information to support a professional opinion of market value based on international best practices, and b. losses caused by the cessation or interruption of income-generating activities under Article 60 of the Law where the determination of actual loss is constrained by the informality or seasonality of the activity, lack of records, or other factors. 2. In a project where application of more than one of the methods of valuation provided for in Articles 5, 6, 8 or 9 is authorized by the Director, the method that produces the highest valuations must be used. 3. Where application of a method of valuation provided for in this Chapter produces a value that is in the opinion of the Director significantly higher or lower than an amount that would represent fair compensation, then the method must not be applied. 4. A valuation of land or losses based on the provisions of this Chapter may be increased as it affects a parcel of land or an income-generating activity where the particular characteristics of the parcel or activity support a higher valuation. 5. Valuations based on the provisions of this Chapter are not binding on an arbitrator or a court. Article 4 Authorization of Director Application in a project of the methods of valuation provided for in this Chapter requires the prior written consent of the Director, who must be satisfied on the basis of an inquiry and report that a. their use is justified on the basis of an inquiry as to the existence or sufficiency of market information, and b. the method chosen produces the highest values of the available methods. Article 5 Proportion of building value method 1. Land used for any purpose, or vacant land that is available for use for a purpose consistent with the purposes for which land is used in the vicinity, may be valued as follows: a. On the basis of the highest and best use of the land determine the cost of an average standard building. b. Determine an average or typical parcel size for such a building in the area affected. c. Calculate the value of an average or typical parcel by applying a factor of 33% to the cost of an average standard building. d. Divide the result by the average or typical parcel size to determine the value of land per square metre. e. If a parcel of land is 25% or more larger than the average or typical size, the excess land may be valued on a sliding scale relative to size, but in no case less than half of the value per square metre determined under paragraph (d). 2. The 33% factor provided for in paragraph 1(c) is effective for a maximum period of five years from the date this Regulation comes into force. 18

20 3. The Minister of Justice may by Ministerial Decree set a proportion of building value factor for subsequent five-year periods, in each case on the recommendation of the Director based on a study of current market values, and in the absence of such a decree the method of valuation set out in this Article may not be used. NOTE A broad international average for the proportion of land to building value is around one-third. In Timor-Leste it is relatively straightforward to determine building cost, so that application of the onethird factor will produce an understandable notion of land value. This method can be expressed by the following formula: C = cost of average standard building S = average or typical parcel size Land value per square metre = 0.33 x C S Article 6 Ratio of income to housing expenditure method 1. Land occupied for residential purposes, or vacant land that is available for residential occupation, may be valued as follows: a. Determine an estimated annual average household income for the area affected. b. Multiply the estimated annual average household income by 3.5. c. Apply the land proportion factor provided for in Article 4 to determine an average parcel value. d. Divide the aggregated value of all parcels by the total area of land to determine the value of land per square metre. e. If a parcel of land is 25% or more larger than the average or typical size, the excess land may be valued on a sliding scale relative to size, but in no case less than half of the value per square metre determined under paragraph (d). 2. The 3.5 factor provided for in paragraph 1(b) is effective for a maximum period of five years from the date this Regulation comes into force. 3. The Minister of Justice may by decree set an estimated annual average household income factor for subsequent five-year periods, in each case on the recommendation of the Director based on a study of current market values, and in the absence of such a decree the method of valuation set out in this Article may not be used. 4. Where it is not possible to substantiate the annual average household income in an affected area due to the informality or seasonality of income-generating activities, lack of records, or other factors, annual average household income may be determined by the inflation adjusted minimum wage method under Article 7. 19

21 NOTE An internationally consistent ratio of house value to household income exists. The sustainable value of a house (including its land) is around 3.5 times annual household income. This method determines what typical residents would be able to afford based on estimated average household income. Then the proportion of land to building value factor is applied to determine land value. (It is 25% rather than 33% because in this case the proportion is applied to land+building value.) The method is summarized as follows: Estimate annual average household income in the area Multiply by 3.5 to determine cost of a typical affordable residence, including land Multiply by 0.25 to determine land value (equivalent to 0.33 of building value only) Divide by average or typical land size If the area is populated by persons in informal activities or basic agriculture, making it difficult to establish income levels, then the inflation adjusted minimum wage method (Article 7) may be used. Article 7 Inflation adjusted minimum wage method 1. Where a person or household affected by the interruption of an income-generating activity is unable to substantiate the actual loss due to the informality or seasonality of the activity, lack of records, or other factors, the loss may be determined on the basis of the official daily minimum wage adjusted by the Consumer Price Index from the date the minimum wage came into effect. 2. Compensation for a household is based on the number of members of the household of working age participating in the activity. 3. Where an income-generating activity is caused to cease permanently and cannot be resumed at another location, the affected person is entitled to wages for six months, in addition to other items of compensation. 4. Compensation calculated under this Article is in addition to costs of removal and restoration of assets and mechanisms for re-establishing income and means of subsistence. NOTE This article provides a methodology for valuation of livelihoods and income sources for enterprises and income-producing activities of the poor. This is analogous to the rules of thumb for land valuation as it is a method of producing an understandable uniform amount where actual determination of loss is constrained by the lack of records, seasonality of the activity, and other factors. Article 8 Land value map proportions 1. For urban areas or parts of them the Director may prepare land value maps showing ranges of values within designated zones. 20

22 2. The ranges of values and factors must be based on whatever information is available as to market sales within the urban area in the period one year prior to approval, and to the extent such information is non-existent or insufficient the methods set out in Articles 5 and 6 may be applied. 3. Land value maps must include a description of the factors to be used in determining the value of a particular parcel within the range of value for that zone. 4. Land value maps are valid for a maximum of two years from the date of approval. NOTE This technique uses maps of land value zones in urban areas, taking whatever market sale information can be found and adjusting it by location. A range of values is set for each zone, rather than a fixed value. Because land values may be more changeable in urban areas and more market sales information may arise, the validity of land value maps is short-term. Article 9 Minimum land value for linear projects 1. In this Article, linear project means a road, motorway, tunnel, railway, water pipeline, irrigation canal, drain, sewer, electric power transmission or distribution line, telecommunication line or cable, or other project of a linear character. 2. Outside of urban areas parcels of land up to 500 square metres required for linear projects shall be valued at no less than $ per square metre. 3. If a parcel of land required for a linear project is more than 500 square metres, the excess land may be valued on a sliding scale relative to size, but in no case less than $ per square metre. 4. The values provided for in paragraphs 1 and 2 are effective for a period of two years from the date this Regulation comes into force. 5. The Minister of Justice may by decree set minimum land values for subsequent two-year periods, in each case on the recommendation of the Director based on a study of current market values, and in the absence of such a decree the method of valuation set out in this Article may not be used. NOTE This method provides for simple, understandable and uniform compensation for land taken for linear projects such as road construction and widening in rural areas. The figure should err on the high side. Again, a two-year limit is imposed for its effectiveness. CHAPTER III PROCEDURES Article 10 Gender analysis 21

23 1. In the planning of a project under Chapter II of Title II of the Law, study, review, consultation, and analysis of social issues must include identification of the particular needs and priorities of women and of project impacts on women. 2. A resettlement plan must provide for targeted assistance for women if the social impact assessment concludes that such assistance is needed to ensure that land acquisition and resettlement do not disadvantage women. NOTE Gender analysis in land acquisition is an accepted international social safeguard. Although the Expropriation Law requires social impact assessment to be carried out, a specific requirement to have regard to the impact on women is needed to meet the safeguard. Article 11 Monitoring and evaluation 1. A resettlement plan must include a monitoring and evaluation plan commensurate with the project s risks and impacts and satisfactory to the Director concerning the outcomes of resettlement, their impacts on the standard of living of affected persons and whether the objectives of the resettlement plan have been achieved. 2. The beneficiary of the expropriation must a. comply with the monitoring and evaluation plan, b. submit monitoring reports to the Minister of Justice, the Minister of Social Solidarity, and the Commissioner or Ombudsman for Human Rights, c. at the time of submitting monitoring reports to the Minister, publish a notice in at least two national newspapers and post a notice in the sede de suco of the suco where the project is located stating i. that the monitoring reports have been submitted as above, ii. that they are available for inspection and copying, and iii. the address and times at which they are available, and d. ensure that copies are available for inspection by affected persons, interested nongovernmental organizations, and the general public. NOTE International social safeguards require monitoring and evaluation of land acquisition and resettlement projects, to show the extent to which the outcomes of the resettlement plan have been achieved. This article requires a monitoring and evaluation plan, without being prescriptive about its form and content. Affected persons and the public have access to monitoring reports. Article 12 Consultation in preparation of resettlement plan For the purposes of preparing a resettlement plan the beneficiary of expropriation must consult with affected persons on